Co-op CIO Ian Dyson on the challenges of M&A and outsourcing

It is a stalwart British institution and in a very British way it likes to do things a little bit differently. The Co-operative Group has graced our high streets since 1844 when it was founded in Lancashire. That desire to be different permeates the entire organisation from its ownership status, its attitude towards farmers and suppliers and even to its IT policy.

Manchester is Co-operative country. The city is dominated by Co-operative head office buildings, from the towering skyscraper of the financial services headquarters to the grand warehouses and former banking HQ of the Victorian era that form the boundaries of the Manchester Complex campus. The organisation is more than aware of this and has plans to develop its region of this vibrant city into a working, retailing and leisure hub.

“The Co-operative Group is the overall business, but there are two halves: the Trading Group and Co-operative Financial Services,” Ian Dyson, director of IS for the Trading Group, explains. Co-operative Financial Services is the banking arm, while the Trading Group runs the supermarkets as well as services including its pharmacy chain and funeral services, legal provision, travel and car sales divisions.

In recent years The Co-operative has been rejuvenated as a business in part through growth: it acquired supermarket rival Somerfield in 2008 and the Britannia Building Society merged into the financial services arm last year. A large-scale advertising campaign for its food retail and banking services has reminded customers of the non-shareholder ownership and ethical stance that this allows too. As a result, customer numbers have increased and the brand has become a bit of a darling of the nation even remains untarnished by the credit crisis.

A set of 16 values and ethics has set the organisation apart throughout its long history and of late has attracted a new more environmentally and socially aware consumer. The values include democracy and equality for its members who, as consumers and users, can also become owners of the organisation. The Co-operative Group is owned by over five million members from its customer base of 21 million. Its Food division has been ranked the most ethical supermarket in the UK because of its backing for Fairtrade and British farming; it is also the third largest pharmacy in the UK and owns the online bank Smile.

With a wide range of customer offerings and a direct involvement in the supply of food to outlets, the management structure of Dyson’s 370-strong IT outfit is divided into eight areas to meet the needs of the distinct areas of the organisation. His eight direct reports cover technical services, pharmacy IT, food IT systems, corporate IT, business systems, software development, governance and security, and travel IT. The managers of these have an involved role too; for example, The Co-operative Group has 800 pharmacists, the director of Food IS has responsibility for IT across the Somerfield and Co-operative food operations, and business systems has to manage multiple trading systems across 11 business areas as diverse as funeral, legal services and car dealerships.

“We are providing IT services across the entire business, which is a challenge and a half because of the variety. There is no business like it in the UK,” Dyson says in his relaxed manner.

When The Co-operative Group announced in July 2008 that it was acquiring Somerfield’s 700 convenience stores and supermarkets, the business world really sat up and took notice of the once-mighty retailing giant.

The rise of Tesco under Sir Terry Leahy and subsequent market land grabs by Sainsbury’s, Waitrose, Morrisons and US-owned Asda has dominated the retail sector of late and initially knocked The Co-operative off its podium position in the UK retail sector. But the Somerfield acquisition, a rejuvenation of the stores and advertising have put The Co-operative back into the forefront of shoppers’ minds.

The integration of Somerfield was nearing completion when CIO met Dyson at this Manchester office and he explained how the greatest challenge for him was incorporating Somerfield’s business culture into the co-operative movement.

“All the Somerfield stores will be re-branded as The Co-operative by the end of this year following a full refurbishment and change to Co-operative product lines,” he says. By acquiring Somerfield, The Co-operative has increased its physical footprint across the nation, although as part of the acquisition, the Office of Fair Trading insisted that some stores, especially in towns where there were both Co-operative and Somerfield stores, have been sold off. Dyson explains that this has been beneficial as generally larger stores which are not part of the corporate strategy were sold to the major supermarket chains. “We are a good convenience operator in stores of 3000 to 10,000 feet.”

His greatest IT challenge of the buy has been the change in stock management and replenishment. Somerfield operated a central stock management system for its network of stores, while The Co-operative Group was more locally focused. Dyson saw the acquisition as a chance to move The Co-operative over to a central stock management model.

This adoption also gave the Somerfield IT team an important role to play in the integration of their company into The Co-operative and proves that acquisitions are not always about moving the acquired onto your way of operating – it can be a two-way street.

Another test for Dyson to negotiate was the differing attitudes towards outsourcing. Somerfield was a major user of outsourced IT services with large deals with Tata Consultancy Services (TCS) and Nixdorf, all managed by a team of 19 relationship managers.

Pick and mix

“The Somerfield IT team in Bristol is still there and they have been helping by being a bridge with the outsource service providers. Some of the systems decisions were easy though: we utilise the Manhattan warehouse system, while Somerfield operated the more outdated Dallas solution, so that decision was relatively easy and because we have our own point-of-sale system and theirs sat on a 20-year-old old IBM platform, we swapped ours in.”

“We do like to have control and to be masters of our own destiny,” Dyson says of the low levels of outsourcing in The Co-operative Group. Dyson does use outsourcing, however: his networks are managed by BT and like Somerfield he uses TCS and HCL for some development work. “But we are not a full outsourcing user and probably won’t go the full route.

“Long-term the Somerfield TCS contract will not feature as fully as it did, but we are talking to them on a number of things,” he explains.

“We believe we can drive value from having internal resources as opposed to outsourcing and, by and large, that has proven to be the right thing for us.” Dyson sees the role of outsourcers as picking up spikes of increased workload or for specific projects where there is an advantage.

“The chief executive is very focused on cost control. It is instilled into us. There is a rigorous planning and budgeting exercise every year starting from the bottom up and we do have to justify our entire level of expenditure. It’s quite intense and does help with maintaining the cost challenge, but it is time consuming.”

This exercise has benefits beyond the management Star Chamber that Dyson is part of, and he believes it focuses the entire IT team. Accordingly Dyson is about to begin charge-backs for IT services to end-users in the organisation.

Across the road from Dyson’s office is the solar panel-clad HQ of Co-operative Financial Services which made headlines last year when it announced a merger with the Britannia Building Society. Dyson says he works closely with his counterpart in Financial Services.

“We are both identifying synergies and commercial benefit between the two sides of the business. Group-wide deals with BT, Oracle and Microsoft are in place as we collaborate to drive business benefit.”

With the integration of Somerfield nearing completion, the next major challenge for Dyson is the move to a new headquarters building which, in line with The Co-operative’s ethical credentials, will be one of the greenest buildings in the UK. The new building is expected to become operational in the summer of 2012.

“It is an opportunity; we have an infrastructure here which needs replacing. The new building will house 2500 people out of a workforce of 3500. Flexible working will be a key feature of our operations from the new building which means I need a more flexible IT infrastructure and we have over 200 people already trialling it.” Voice over IP will feature heavily in the plan, Dyson says, and he is already moving people onto a virtual desktop environment.

“By the end of this year there will be 600 people on virtual desktops, 1200 by late 2011 and the rest in 2012, so that when we move they are already using the technology. There is also a plan to introduce unified communications and we are migrating email away from six different email platforms to Exchange 2007, which will form the foundations for unified communications,” he explains.

A city united

Dyson is also considering a new green primary datacentre for the organisation. “We are very serious about this and have already built one in Rochdale,” he says. The new HQ and datacentre are being developed with full support of Manchester City Council which Dyson says realises the value the organisation brings to the city.

“With the rebirth of the brand people want to come and work with us. We are an employer of choice and our attrition is as low as five per cent.” Dyson says that Manchester has an excellent IT talent pool and that the company’s recent activities have helped him scoop up some of the best.

By developing its own team of expertise rather than outsourcing, the Co-operative’s IS team has not only managed to keep the systems running at cost to please the chief executive and business; as well as begin the process of creating a new IT environment for the new office; it has also developed an electronic point-of-sale (Epos) system that The Co-operative owns the IP for and now actively sells on the Epos market as a vendor.

“We have the biggest installation of Epos in the UK; we have 3000 food outlets, 800 pharmacies; that’s 14,000 lanes of Epos tills.” The in-house developed InControl-Evolution went to market in May as an out-of-the-box software and licensing model that has already won business from the Day Lewis pharmacy chain.

“This solution could fit any customer-facing business and it is supported by IBM and Microsoft as it uses embedded Windows XP on SQL Server,” says Dyson.

Dyson became IT leader of The Co-operative Group in July 2007 when United Co-operatives and the Co-operative Group merged in the same month, which also led to United chief executive Peter Marks taking the helm of the larger single business, which is the largest consumer owned organisation in the world.

Like many within The Co-operative, Dyson is a lifer. He’s been with the group over 30 years, joining its accounting division in 1978. “The size of the organisation even then was huge. There were a lot of chances to move around the business, so I did a variety of financial roles,” he recalls.

“I joined by accident. I was going to go to college but I took a summer job here and realised there were opportunities to continue studying, to earn and to get experience,” he says. Being in finance in the early 1980s meant he inevitably came into contact with IT and one implementation gave him responsibility for a team.

“I saw the light in the 1980s and was bored with accounting, but having a financial background helped a great deal with the three-year plans, budgets and basic business acumen.” He rose to become head of IT at United and director of Trading Group IS following the merger.

“I get a buzz from providing a service to the users and making a difference to the business,” he says. Asked about his long tenure, Dyson reveals it’s the norm at The Co-operative. “We have a lot of people that have done service in excess of 10 or 15 years. They do invest in people; training is still high on the agenda, so there is a tremendous loyalty.

“A lot of people like the ethics, and so do I as well. It’s why I stayed; there is a great feeling to the place.”

Dyson’s relaxed manner and infectious enthusiasm for The Co-operative do fill you with belief in the organisation. It does things in a slightly different way, but sales of £13.7bn demonstrate a sound business in anyone’s judgement. The IT team have largely avoided outsourcing and as a result have used their abilities to build a product that has added yet another product line, and therefore revenue stream, to the Co-operative Group’s business plan.